What is short term disability insurance and do I need it?


Short term disability insurance provides you with a portion of your (lost) income even as you are recovering from an injury or a serious illness. This will pay a specified number of weeks or months (from 3 to 24 months, depending on the short term disability insurance policy one has). It may also stop if you don't meet the eligibility criteria within the payment period.

Here are some facts about short term disability insurance. We hope it will help you decide whether you need this kind of coverage or not.

  • Coverage. The insurance will pay in the event that you are disabled outside of work. If you are disabled or injured during the course of your doing your job, workers' compensation and other employer-sponsored disability benefits will cover the payments.
  • Waiting period. There is a waiting period before the disability payments will start to kick in. It is assumed that you have enough savings to cover your lost income during the waiting period. The waiting period may be from one week to a month.
  • Eligibility for payment. The insurance may only pay if you meet the insurance company's definition of "disablement". It doesn't pay any benefits until you are disabled. You need to weigh this - you should balance the possibility of your being injured or seriously sick and whether your savings will help tide you over for the duration that you are disabled. Ask yourself whether you can cover living expenses during the time you are unable to work.
  • Payment amounts and limits. The insurance will not pay your full income. Instead, it will pay a specified percentage of your salary. The payment period is also limited (hence the name "short-term"). After the paying period is over, the disability benefit payments will stop - if you have long-term disability insurance, this may pick up where short-term insurance left off.
  • Available cover. Ask your present employer if they offer free short-term disability insurance - some employers do! If you already have the coverage, it may be wise to question whether you need to buy a separate plan. You should also consider the fact that even if you have more than one short-term disability plans, the payments may not exceed the actual income you have currently.
  • Statistics. According to the Council for Disability Awareness, 30% of those in the workforce will experience a disability of some kind before they retire. Also, 1 out of 7 persons may experience this disability for five years or longer prior to retirement.
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